International Monetary Fund and its functioning

Résumé du document

In 1853, Commodore Matthew C. Perry entered Japan and opened the country to international trade with the Western societies. Japan was then an ill-developed country, living according to its old traditions and religions. In 1868, a new Emperor from the Meiji dynasty, Mutsuhito, who was only 15 year old at the time, decided to implement a great modernization plan in order to bridge the gap between his country and the West . The improvements were fast, every aspect of the society were changed, including the army. The latter was so modernized that something inconceivable happened in 1904: the Japanese navy defeated Russia off the neutral Korean harbor of Tchemulpo. A new era arose then: the Orient was ready to challenge the Occident. The term “Yellow Peril” was invented to describe the widespread fear in the early 20th century of Oriental armies converging in Europe in order to destroy the “civilized society”. As the French economist Edmond Théry said: “Europe compelled Japan to leave immobility, built them battleships and lent them money, but won't Europe regret having helped this audacious country embrace modern life one day?”

Today, 105 years later, one could say that the world is facing a new “Yellow Peril”, but this time, Japan and Russia have been replaced by China and the United States of America (USA). However, those two new protagonists are not at war against each other in the military sense of the word: their battlefields are politics and economy, and the weapons used are no longer battleships and torpedoes but press conferences and money. Indeed, it has become common to read articles in newspapers stating that the USA government is demanding Chinese authorities to raise the value of the Renminbi (RMB, the Chinese currency, counted in Yuan).

Extraits

[...] The market dropped dramatically under the selling pressure. The balloon exploded. As the American economist Richard M. Salsman said: “Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.” Afterwards, during the 30's, to prevent the economy to totally sink, the western countries decided to implement protectionist laws in order to prevent the importation of goods from others countries, and fight the massive unemployment rate at the time (nearly 25% for USA). [...]

[...] When a country joins the IMF, then it accepts its economy to be overviewed by IMF. The organization then makes sure that policies are made in order to pursue economical development, thanks to economic growth and price stability, but also that the country is not toying with the exchange rates in its favor, for instance competitive devaluation. Moreover, by monitoring economies, IMF can detect any weakness in the economy of the country that would result to economic instability. Each year, IMF staff meets with the country politician, but also with representatives of business and labor union to assess economic and financial development. [...]

[...] In the same interview, he said: clearly thinks that Yuan is undervalued” The relationship between China and USA 1. The political relationship The 27th of July 2010, as related in the French newspaper Monde” of the 23 of August 2010, during the opening of the China-USA summit in Washington, Barrack Obama declared: “Relationships between China and USA will make the XXI century”. Diplomatically speaking, the relationship was established the 1st of January 1979, when the USA recognized the whole country officially instead of the only island of Taiwan. [...]

[...] The dollar was the money used in international transactions, and it was, good as gold”. Now currencies are floating, value is determined by the market. IMF role has changed into make sure that of the stability of the international system. The three missions are Surveillance, Technical assistance and Lending to countries in need, thanks to a special currency, the Special Drawing Rights. However, relationship can be tensed since some countries have not a floating policy in term of currency. China controls the value of Yuan, and therefore, has a true competitive advantage over its partners. [...]

[...] Moreover, to have a fresh start based on the international trade, the implementation of a stable International Monetary System is the first step towards international economical cooperation. So in order to avoid the past mistakes, in the 22nd of July delegates from 44 allied nations were gathered, and from this meeting, Bretton Woods system was born. Two new organizations were created: - The International Bank for Reconstruction and Development (IBRD), that has now become the World Bank, which is, traditionally, ran by an American president, currently Robert Zoellick. [...]